Despite the pull of tradition, many people follow their own schedule and retire either earlier or later than what Social Security calls full retirement age. You may do that as well. But you should take some time to think what your decision could mean to your financial security.
THE EFFECT, IN $s and ¢s
Financially speaking, the biggest downside of retiring early is having less income. The most obvious reason is that you're not working. But retiring early can also mean a reduction in the retirement income on which you were planning.
If all or part of your pension comes from a traditional plan, the amount may also be reduced to offset the greater number of years you are expected to collect - though that policy isn't the same with every employer. Sometimes a pension is based on your salary and the number of years you've worked rather than your age when you retire. In other cases, you can retire with full benefits at age 55.
If you apply for Social Security at 62, the first year you're eligible, you'll receive a smaller benefit each year for life than if you begin collecting at the full retirement age. People born before 1938, for example, collected 80% of what they would have been eligible for had they started benefits at age 65. But people born in 1938 or later are eligible for a smaller percentage at age 62 because the age at which full benefits are paid has increased (It was 66 for people born in 1943 to 1954, and is increasing gradually to 67 for people born in 1960 and later). You can find the specific percentage you'd qualify for, based on the year you were born, on the Social Security website, www.ssa.gov.
THE INVESTMENT DIFFERENCE
What's more, retiring early often means you start withdrawing money from your retirement accounts sooner, reducing the base on which they can grow. That means you need a larger nest egg if you want to ensure your income will last as long as you need it.
WEIGHING THE CHOICES
If you're offered a choice of early retirement packages, here are some questions to ask:
- Will the base on which my traditional pension is figured be increased? By how much?
- Will the offer increase the percentage of my salary that's being replaced?
- If I take a lump sum , is that on top of my regular pension or instead of it?
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